Firm compliance professionals can access filings and requests, run reports and submit support tickets. These records include, (i) information relating to the principals responsible for reviewing and updating policies and procedures, (ii) copies of Forms BD, BDW and amendments thereto, (iii) copies of compliance, supervisory, and procedures manuals, (iv) customer account records, (v) order ticket information, (vi) records relating to compensation of associated persons, (vii) evidence of compliance with SRO advertising and sales literature rules, (viii) exception reports, and (ix) specialized reports produced pursuant to an order or settlement. This modification was made in response to broker-dealer comment letters that noted some firms do not assign a particular associated person to each account, and some firms allow customers to enter orders directly into a broker-dealer's systems, such as through an on-line trading account. 93 It should be noted that these estimates do not include any internal compliance, operational, and/or legal costs incurred by these firms in dealing with these complaints. Filed a claim for a loss from worthless securities or bad debt deduction. 84 See Comment Letters from Mutual Service Corporation, p. 6; Titan Value Equities Group, Inc., pp. 153 Pursuant to 17 CFR 240.0-10, the term "small business" or "small organization" when used with reference to a broker or dealer means a broker or dealer that: (i) had total capital (net worth plus subordinated liabilities) of less than $500,000 on the date its audited financial statements for the prior fiscal year were prepared pursuant to 17 CFR 240.17-5(d) or, if not required to file such statements, a broker-dealer that had total net capital (net worth plus subordinated liabilities) of less than $500,000 on the last business day of the preceding fiscal year (or in the time that it has been in business, if shorter); and (ii) is not affiliated with any person (other than a natural person) that is not a small business or small organization as defined in 17 CFR 240.0-10. The Commission clarified that the identity of the associated person responsible for the account must be included only if the broker-dealer assigns to an associated person responsibility for certain accounts. Periodic Updating of Customer Account Record Information. (a) Every broker shall keep records as prescribed herein of all funds of others received by him or her for not less than six years from the date of receipt of any such funds. There have been two major changes to new paragraph (k) of Rule 17a-4 from the reproposal. This rule does not limit a broker-dealer's responsibilities under SRO and other regulations that may require creation and maintenance of records regarding, or reporting of, oral complaints. If you shopped on Black Friday or Cyber Monday, chances are you did what smart shoppers are supposed to do around the holidays. 110 Including customer name, address, telephone number, employment status, annual income, net worth, and the investment objectives for the account. The term "non-monetary compensation" includes compensation such as sales incentives, gifts, or trips that would be provided to associated persons if certain sales goals were achieved. ($156.00 x 2) = approximately $312.00 per broker-dealer. SEA Rules 17a-3 and 17a-4 containsomeof the books and records that broker-dealers are required to create and retain. The Alternatively, the broker-dealer may place in escrow and keep current a copy of the physical and logical file format of the storage medium, the field format of all different information types written on the storage medium and the source code, together with the appropriate documentation and information necessary to access records and indexes. 122 See Comment Letter from Morgan Stanley Dean Witter, p. 4. departing broker. The Commission believes that generally broker-dealers are already keeping these records and that this amendment codifies current business practices. 34-44992 ; File No. 3507(d) and 5 CFR 1320.11 under the title "Books and Records Rule Amendments." 1 and 3; NASAA, pp. OMB is required to make a decision concerning the collections of information between 30 and 60 days after publication, so a comment to OMB is best assured of having its full effect if OMB receives it within 30 days of publication. Of the 70,500,000 accounts which may be affected by these amendments, approximately 68,385,000 (or 97%) are maintained at these large broker-dealers, and 2,115,000 (or 3%) are maintained at broker-dealers with less than 100,000 accounts each. 77 This includes changes to hardware, software, or changes to the database used to produce the exception reports. The reproposal has been altered to allow a firm, rather than to maintain records at an office, to produce the records promptly at the request of a representative of a securities regulatory authority at the office to which the records relate or at such other place as is agreed to by the representative. Books and Records Rules Pertaining to Electronic Communications. Firms may, of course, elect to provide this information to customers more frequently in order to coincide with other mailings. Of these 7, 217 active, registered broker-dealers, three are registered OTC Derivatives Dealers. In addition, if the compensation is non-monetary, that description should include an estimate of its value. FINRA also has specific recordkeeping rules. See, (July 2003) (Clarification for Members Regarding Supervisory Obligations and Recordkeeping Requirements for Instant Messaging), FINRA operates the largest securities dispute resolution forum in the United States, To report on abuse or fraud in the industry. In the Reproposal, the Commission specifically sought comment on whether, for joint accounts, the firm should obtain the account record information for each individual. 15 U.S.C. Of the three commenters that addressed aspects of the reproposed rules and rule amendments that could potentially affect small businesses, one stated, "[t]he proposal to require blotters in local offices may cause an initial financial burden to firms which havethree or less broker offices. The Commission is adopting amendments to Rule 17a-3(a)(12)(i) to update the list of stock exchanges for which an associated person's application for registration or approval may be used to satisfy the requirements under that paragraph. Even in today's increasingly paperless world, it's still a good idea to keep hard copies of key investment records (this may mean printing them out yourself if you have chosen to go paperless with a financial institution). Broker-dealers generally maintain account record information for at least the life of the account to facilitate a number of business purposes, including suitability determinations and supervision of accounts and representatives. Most commenters that addressed this issue did not object to maintaining personal information for each owner of joint accounts. Brokerage Account - Closing Your Brokerage Account. 55 See e.g., NASD Rule 2210(b) and NYSE Rule 472. By maintaining records, you'll have your cost basis, which is what you originally paid for an investment when you bought it, plus the cost of making the investment, such as commissions you paid. 119 The estimated total additional hours to provide customers with account record information is 880,369 hours ((((22,795,000 x 1) + (705,000 x 7)) + ((4,559,000 x 1) + (141,000 x 7)) + ((3,419,250 x 1) + (105,750 x 7))) / 60 minutes). These two firms further estimate that ongoing costs for equipment and systems development would range from $300,000124 to about $1,600,000125 per year. Make sure you examine your account statements and trade confirmations carefully to make sure they accurately reflect the date, price, and type of security bought or sold and the certificate number of any security you received from or delivered to your broker. 105 See Comment Letter from State of Texas' State Securities Board, pp. In this case, keep records for seven years. (4) The term associated person shall have the meaning set forth in 240.17a-3(g)(4). (ii) Of all agreements pertaining to the relationship between each associated person and the member, broker or dealer including a summary of each associated person's compensation arrangement or plan with the member, broker or dealer, including commission and concession schedules and, to the extent that compensation is based on factors other than remuneration per trade, the method by which the compensation is determined. New Records Concerning Associated Persons, Rule 17a-3(a)(12) requires a firm to make records relating to associated persons of the firm, including information regarding the associated person's employment and disciplinary history. The State of Florida performed examinations on 19 broker-dealers. These amendments codify current recordkeeping practices and make clear what records broker-dealers may be required to provide to State and other regulators. 76 For example, if the original report includes customer name, account number, social security number, and transactional information, however the report that can be re-created at a later date does not include social security numbers, the firm should provide the re-created report to the regulator with an explanation that although social security numbers appeared on the original report, the firm is unable to re-create the report including that information. In addition, the amendments require that, if the account is a discretionary account, the firm must obtain (i) the signature of the customer granting discretion, (ii) the date discretion was granted, and (iii) the signature of the person to whom discretion was granted. This is a very conservative estimate, since it will probably take much less than 2 hours to write down the broker-dealer's address and where it should be placed on the form, but additional time was added to account for supervisory review. Before NSMIA, States had various books and records requirements. In the case of a joint account, the account record must include personal information for each joint owner who is a natural person; however, financial information for the individual joint owners may be combined. According to the SIA Management and Professional Earnings 2000 report, Tables 107 (Attorney) and 108 (Compliance Attorney), the hourly cost of an attorney + 35% overhead is $156.00 per hour. Definition of Securities Regulatory Authority. (4) Originals of all communications received and copies of all communications sent (and any approvals thereof) by the member, broker or dealer (including inter-office memoranda and communications) relating to its business as such, including all communications which are subject to rules of a self-regulatory organization of which the member, broker or dealer is a member regarding communications with the public. The account record shall indicate whether it has been signed by the associated person responsible for the account, if any, and approved or accepted by a principal of the member, broker or dealer. Most broker-dealers, including Small Business Broker-Dealers, already maintain many of the records specified in the amendments in the ordinary course of business. 604). The retention period for firms books and records varies. 3. Further, firms will incur additional costs to update account information when customers notify the firm that their account record information has changed. In response to the comments received on the Proposing Release, the Commission substantially modified the amendments, and reproposed them to allow for public comment on the modifications.9 In response to the reproposal, the Commission received approximately 115 comment letters from various groups, including broker-dealers, law firms representing broker-dealers, industry associations, and State Securities Regulators. (6)(i) A memorandum of each brokerage order, and of any other instruction, given or received for the purchase or sale of securities, whether executed or unexecuted. Also, three technical changes were made from the rule as reproposed.16. The delay is costly for regulators, particularly when they travel to remote areas to conduct surprise examinations at an office where they may spend numerous days awaiting the records.60. Many broker-dealers also carry insurance in excess of SIPC's coverage. Section 17(a)(1) of the Securities Exchange Act of 1934 ("Exchange Act" or "SEA") requires registered broker-dealers to make, keep, furnish and disseminate records and reports prescribed by the Securities and Exchange Commission ("SEC"). Learn why we urge investors to be cautious if they are considering an investment involving crypto asset securities. For accounts in existence on the effective date of this section, the member, broker or dealer must obtain this information within three years of the effective date of the section. SIPC provides limited coverage to investors on their brokerage accounts if their brokerage firm becomes insolvent. Further, financial information for the owners can be combined. This requirement applies to all electronic communications relating to the firms business, including emails and instant messages. 897, as amended; 15 U.S.C. If you see a mistake, call your broker immediately. Most broker-dealers already collect this information to assist them in assessing customers' suitability or to comply with other rules. All firms must have policies and procedures that address recordkeeping obligations, including retention periods. requires all licensees to maintain possession of their transaction files for 4 years. 1, 3, and 5; New Mexico, p. 1; North Carolina, pp. This paragraph, which is designed to allow State Securities Regulators to examine broker-dealers for compliance with SRO rules relating to communications with the public, does not establish a new, source of supervisory responsibility. FINRA has prepared a chart that summarizes the most significant changes. The member, broker or dealer shall include with the account record or alternative document provided to each customer or owner an explanation of any terms regarding investment objectives. 38245 (Jan. 31, 1997), 62 FR 6469 (Feb. 12, 1997). Unless your investments are in a tax-deferred account such as an IRA or 401(k), you must pay income taxes if your stocks pay dividends, your mutual funds make distributionseven if the dividends and distributions were reinvestedor you collect interest income from your bonds and cash investments. This paragraph (a)(17)(i)(D) does not relieve a member, broker or dealer from any obligation arising from the rules of a self-regulatory organization of which it is a member regarding the collection of information from a customer or owner. For the reasons set forth in the preamble, Title 17 Chapter II of the Code of Federal Regulation is amended as follows: PART 240 GENERAL RULES AND REGULATIONS, SECURITIES EXCHANGE ACT OF 1934. See Rule 17 CFR 240.17a-3(a)(17)(i)(D)). Paragraph (a)(6) now contains an exception providing that, for transactions done on a "subscription-way" basis, where an application or subscription agreement is sent to the issuer in place of an order ticket, broker-dealers may keep the application or subscription agreement in place of the order ticket. Without these amendments, the States may be unable to obtain those books and records necessary to conduct comprehensive examinations. A. Memoranda of Brokerage Orders and Dealer Transactions. One approach to cost-basis recordkeeping is to keep a separate worksheet for each investment, showing when you bought it, how much you spent, how many shares or units you bought and what commission you paid. This paper trail can be an important part of making a formal complaint and pursuing a resolution. 107 ($405.00 per respondent x (7,217 broker-dealers) = approximately $2.9 million per year. Some commenters requested clarification of whether, in an introducing/clearing relationship,49 the contact information should be that of the introducing firm, the clearing firm, or both. (i) As to each associated person of each written customer complaint received by the member, broker or dealer concerning that associated person. The original and duplicate indexes must be stored for the same amount of time as the underlying indexed record. If you do not have . An optical disk is a direct-access disk written and read by light, such as a CD-ROM. If the complaint related to a particular associated person, the firm would also be required to make a record of the complaint as to that associated person under Rule 17a-3(a)(18); however, the firm may keep one copy of the complaint to satisfy both Rules 17a-3(a)(18)(i) and 17a-4(b)(4). Firms may not permit the use of any type of electronic communication if they are unable to satisfy the applicable recordkeeping requirements with respect to that particular type of electronic communication. In addition, the Commission estimates that all broker-dealers will, on average, incur a one-time cost of approximately $312.00 each120 to update their forms, resulting in an aggregate cost of approximately $2.25 million. The Commission does not believe that it would be appropriate to use performance standards, rather than design standards, with relation to these amendments. . As described more fully below, the Commission estimates that large broker-dealers (broker-dealers having over 100,000 accounts) will, on average, incur startup costs and ongoing costs to purchase and maintain additional equipment and develop systems of $.31 per account and $.25 per account respectively. The Books and Records section of the 2022 Report on FINRAs Risk Monitoring and Examination Activities (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) relevant regulatory obligations and related considerations, (2) exam findings and effective practices, and (3) additional resources. Brokerage Company: A brokerage company's main duty is to be a middleman that connects buyers and sellers to facilitate a transaction. See NYSE Rule 405(3) and NASD Rule 3110(c)(1)(C). While brokerages have cost-basis reporting obligations, it's still important that you keep good records of your transactions. In addition, they largely represent a codification of prudent recordkeeping practices of many broker-dealers. To comply with this rule, a firm may identify more than one person and list which records each person is able to explain. Approximately 44% were from broker-dealers opposing particular amendments and approximately 37% were from State Securities Regulators supporting the amendments. These commenters also contended that the investment objectives should reflect the objectives for the account and not the objectives of the individual owners. The Commission estimates that approximately 20%172 of the customers from whom information is requested will update their account record resulting in 4,700,000 updated account records each year (70,500,000 / 3 years x 20%). The Commission believes that firms will have senior compliance personnel ensure compliance with these amended rules. Afshin AtabakiandNicholas Vitalo While it is acknowledged that some customers will provide broker-dealers with changes to their account information outside of this update process, as those are changes broker-dealers must contend with in the present environment, the amendments create no additional burden in this regard. The paper trail ranges from trade confirmations to account statements, to IRS Form 1099 tax records, which report the taxable interest, dividends and distributions paid directly to account holders or shareholders. 95 See Second Comment Letter from State of Connecticut. In addition, firms are required to periodically review and update their recordkeeping written supervisory procedures and to have appropriate written supervisory control procedures to test and verify that those recordkeeping supervisory procedures are reasonably designed to comply with applicable recordkeeping laws and regulations and FINRA rules and to update or amend them if necessary. L. No. Paragraph (ii) of Rule 17a-3(a)(18) requires firms to make a record indicating that each customer has been provided with a notice of the address and telephone number of the department of the firm to which any complaints may be directed.48 This will assist both customers and broker-dealers to ensure that complaints reach the proper person or department so they can be recorded, reported (if necessary), and answered. Because many commenters contended that this estimate was too low, the Commission raised its estimates. The memorandum need not show the identity of any person other than the associated person responsible for the account who may have entered the order if the order is entered into an electronic system that generates the memorandum and if that system is not capable of receiving an entry of the identity of any person other than the responsible associated person: in that circumstance, the member, broker or dealer shall produce upon request by a representative of a securities regulatory authority a separate record which identifies each other person. With a bank CD, to withdraw money before a term ends, you typically must pay a penalty. According to the SIA Management and Professional Earnings 2000 report, Tables 107 (Attorney) and 108 (Compliance Attorney), the hourly cost of an attorney + 35% overhead is $156.00 per hour. However, the Commission believes that broker-dealers will continue to create those exception reports that are necessary to adequately supervise their business, and that retaining these reports will increase the efficiency of examinations by regulators and may reduce the examination burden on broker-dealers. (e) Every member, broker and dealer subject to 240.17a-3 shall maintain and preserve in an easily accessible place: (5) All account record information required pursuant to 240.17a-3(a)(17) until at least six years after the earlier of the date the account was closed or the date on which the information was replaced or updated. However, many commenters44 stated that with a large number of accounts it would be unduly burdensome to obtain the account record information within one year. 175 See e.g., NASD Rule 2310(b) and IM-2860-2. The Commission believes that firms will have senior compliance personnel perform this task. 4 to 5; M & T Securities, pp. 184 17 CFR 240.17a-3(a)(17)(ii) and 17 CFR 240.17a-3(a)(20). The phrase "the Commission's or designee's staff" and in its place adding "the staffs of the Commission, any self-regulatory organization of which it is a member, or any State securities regulator having jurisdiction over the member, broker or dealer"; and. Factors that may be considered in assessing a customer's situation include the customer's age, financial situation, and investment experience or knowledge of the industry. The Commission views this additional paragraph as a codification of current industry practice, and it is limited to these types of transactions. The Commission estimates that, in addition to the 70,500,000 updated account records discussed above, 3,525,000 customers (5% of the 70,500,000 accounts for which firms will be required to make the account record) will initiate changes to their account records on a yearly basis, just as they do now, with no prompting from any account record mailing. The Books and Records section of the 2023 Report on FINRAs Examination and Risk Monitoring Program (the Report) informs member firms compliance programs by providing annual insights from FINRAs ongoing regulatory operations, including (1) regulatory obligations and related considerations, (2) findings and effective practices, and (3) additional resources. seq., adopted on October 11, 1996. In addition, the amendments to Rule 17a-3(a)(6) require that firms record the time an order was received from a customer, and the amendments to Rule 17a-3(a)(7) require that firms make a record of any modifications to an order. The SEC books and records rules applicable to broker-dealers, SEA Rules 17a-3 and 17a-4, specify minimum requirements with respect to the records that broker-dealers must make, how long those records and other documents relating to a broker-dealers business must be kept and in what format they may be kept. As small broker-dealers utilize processes which are more manual in nature,170 the Commission estimates that it will take small broker-dealers an average of 7 minutes per account171 every three years, thus requiring small broker-dealers to spend an additional 82,250 hours per year (2,115,000 account records / 3 years x 7 minutes / 60 minutes) to send account records to customers. Exempting Small Business Broker-Dealers from coverage of the rules, or any part thereof, would create a gap in industry oversight, where regulatory authorities may be unable to obtain documentation necessary to conduct comprehensive examinations of Small Business Broker-Dealers. (17) For each account with a natural person as a customer or owner: (i)(A) An account record including the customer's or owner's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is an associated person of a member, broker or dealer), annual income, net worth (excluding value of primary residence), and the account's investment objectives. The information required under new Rule 17a-3(a)(17)(i)(A) for each account with a natural person as a customer includes the customer's name, tax identification number, address, telephone number, date of birth, employment status (including occupation and whether the customer is an associated person of a member, broker or dealer), annual income, net worth (excluding value of primary residence), and investment objectives.
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